3 signs our economy is recovering from Covid-19


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Things may look grim for our economy right now but New Zealand is actually well placed to weather the Covid-19 storm better than many other countries.

There are the factors that will always exist. New Zealand being an island in a pandemic is a good start, as we can keep a firm eye on our borders.

We produce more food than we eat, so we don’t have some of the serious worries on that front that other countries do.

But there are other strengths in our economy that we created for ourselves. If we focus on them, we could boost them even further for a stronger bounce back.

The Government went into crisis with low debt
We seem to have acted fast enough to keep Covid-19 from spiralling out of control, which is reassuring.

That means we should be able to get back to work faster than other countries reeling from higher death tolls, and ongoing sickness. It gives us a stable base for everything else.

Speaking on the latest Cooking the Books podcast, Mark Lister from Craig’s Investment Partners said low government debt gave us the ability to recover quickly by pumping cash back into the economy.

“We’ve had low government debt for decades. Michael Cullen, in his day, kept the books in good shape, Bill English, through the Key government years, was equally frugal, and Grant Robertson until recently was also focused on keeping those debt levels low.

“The reason that’s really important is because if you’ve got low government debt as a percentage of GDP, that means when you hit a rough patch like we’ve absolutely hit now, it means you’ve got more to draw on.

“Maybe borrowing more, and spending more, to soften the blow.”

China is recovering
New Zealand has traditionally relied on exports to make most of its money.

The elephant in the room is undoubtedly travel; that sector has been hit hard, and is unlikely to catch a break until there’s a vaccine for Covid-19.

But other industries can take heart from the apparent recovery of China, one of our biggest trading partners.

“Even if we get things under control and our domestic economy comes out of the lockdown in good shape, what matters for our other businesses is how the other regions around the world are doing,” Lister said.

“For us, China is the biggest, a little more than 20 per cent of our exports go to China.

“The good news there is that China did act swiftly and aggressively to shut this down and reduce the impact of the virus. Now they’re starting to come out the other side.”

Our sharemarket is holding up better than others
In the boom years some complained about New Zealand’s sharemarket being too small and not making enough money.

How times have changed.

We’re dominated by companies that are well placed to survive, and even thrive in this current crisis. Healthcare, property, food companies, utilities, are all good in a downturn and they make up the majority of our market.

“What makes this one different is that it’s a self-induced recession. We’ve chosen to put ourselves into recession, it’s not an asset bubble in housing or too much leverage,” Lister said.

“It’s a health issue we’ve identified and made the decision, quite rightly, to put the whole economy into shutdown. That’s always going to have unwanted consequences like job loss.

“That makes it a difficult one to predict how it will turn out. But on the other side of that coin, maybe it means we can deal with it better.

“We knew it was coming, we put ourselves there for all the right reasons, and maybe that make it easier for us to prepare and manage our way through.”

Listen to the Cooking the Books podcast and read the original article published on 17 April 2020 at https://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=12325328

Question answered 03/05/20 @ 14:48 pm

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